9.Notes Payable

Notes payable consists of the following (in thousands):

	June 30,		December 31,
	2016		2015
Line of credit with FGI	$	2,992	$	3,513
$0.8 million, 8% senior convertible promisory note due 2016	750		-
$0.5 million, 8% convertible pomissory note due 2016	500		-
$0.5 million, 8% convertible director note due 2017	500		-
$2.0 million, 8% shareholder note due 2017	2,000		-
$1.5 million, 8% convertible shareholder note due 2018 (1)	841		1,623
$3.0 million, 8% subordinated convertible shareholder note due 2018 (1)	1,538		2,972
$3.0 million, 8% convertible shareholder note due 2018 (1)	1,535		2,964

	10,656		11,072
Less current portion	(4,242)		(3,513)

	$	6,414	$	7,559

(1)

The aggregate amount of unamortized debt discount was $3.7 million and $0.1 million at June 30, 2016
and December 31, 2015 respectively. See below regarding recent amendments to the shareholder notes.

Line of credit with FGI

At June 30, 2016, the Company had $2.1 million of gross accounts receivable pledged to FGI as collateral for short-term debt in the amount of $1.7 million. At June 30, 2016, the Company also had $1.3 million in borrowings outstanding against eligible inventory. The Company was in compliance with the terms of the FGI Facility at June 30, 2016 and December 31, 2015. However, there is no guarantee that the Company will be able to borrow to the full limit of $7.5 million if FGI chooses not to finance a portion of its receivables or inventory.

Kanis S. A. Indebtedness

On April 1, 2016, the Company executed a Promissory Note (the “Kanis Note”) and entered into an amendment of existing loan agreements (the “Kanis Agreement”) with Kanis S.A. Pursuant to the terms of the Kanis Note, Kanis S.A. agreed to lend the Company $2.0 million at 8% per annum with a maturity date of September 30, 2017. Pursuant to the terms of the Kanis Agreement, the Company and Kanis S.A. agreed to amend prior loans with an aggregate outstanding principal balance of $7.5 million (collectively, the “Loan Agreements”), such that: (i) Kanis S.A. shall have the right to convert the principal balance of the Loan Agreements and any accrued interest thereon into common stock of the Company at any time prior to maturity at a conversion price equal to the lower of the closing price of CDTI’s common stock on the date before the date of the Kanis Agreement or as of the date when Kanis S.A. exercises its conversion right; and (ii) the Company shall have the right to mandatorily convert the $7.5 million principal balance and any accrued interest thereon into its common stock upon maturity of the Loan Agreements or earlier upon the occurrence of a Liquidity Event at a conversion price equal to the lower of the closing price of CDTI as of the date immediately before the date of the Kanis Agreement or at a 25% discount to the Liquidity Event price. A Liquidity Event is defined as a strategic investment in CDTI or a public stock offering by CDTI. The Company may prepay the principal and any interest due on the Loan Agreements at any time before their maturity date without penalty.

Certain financial instruments of the amendment required bifurcation and were determined to be an embedded derivative comprised of a conversion feature and a call option. The conversion feature can be exercised at either $3.60, which is the closing stock price the day prior to the original agreement or at the market price when the conversion is exercised. The call option can be executed by the Company in the event the Company completes a Liquidity Event. The option will be at a 25% discount to the Liquidity Event pricing. At June 30, 2016 the bifurcated derivative liability was $1.2 million. The Company recognized a gain on the bifurcated derivative liability of $2.8 million in the three and six months ended June 30, 2016. For additional information on the bifurcated derivative liability, please see Note 12, “Fair Value Measurements”.

On June 30, 2016, the Company entered into a Letter Agreement (the “Kanis Exchange Agreement”) with Kanis S.A. The Company agreed to an exchange with Kanis of an aggregate of $7,500,000 in principal amount of promissory notes and other indebtedness (collectively, the “Kanis Notes”) held by Kanis, plus accrued interest, for a number of shares of the Company’s common stock equal to (a) the principal amount of the Kanis Notes plus the accrued interest thereon through and including the date of the settlement of the exchange contemplated by the Kanis Exchange Agreement, divided by $1.6215.

Director note

On April 11, 2016, the Company executed a Convertible Promissory Note (the “Director Note”) with Lon E. Bell, Ph.D., one of the Company’s Directors. Pursuant to the terms of the Director Note, Dr. Bell agreed to lend the Company $0.5 million at 8% per annum and a maturity date of September 30, 2017. Dr. Bell has the right to convert the principal balance of the Director Note and any accrued interest thereon into common stock of the Company at any time prior to maturity at a conversion price equal to the lower of the closing price of CDTI on the date before the date of the Director Note or as of the date when Dr. Bell exercises his conversion right. The Company shall have the right to mandatorily convert the principal balance of the Director Note and any accrued interest thereon into its common stock upon maturity at a conversion price equal to the lower of the closing price of CDTI on the date before the date of the Director Note or on the maturity date. The Company shall also have the right to mandatorily convert the principal amount of the Director Note plus accrued interest thereon into its common stock concurrently with the closing of a Liquidity Event at a conversion price equal to the lower of the closing price of CDTI as of the date immediately before the date of this Director Note or at a 25% discount to the Liquidity Event price. A Liquidity Event is defined as a strategic investment in CDTI or a public stock offering by CDTI.

On May 18, 2016, (effective May 12, 2016), the Director Note was amended and restated to amend the conversion features contained therein. The Director Note, which originally had a floating conversion price, allowed Dr. Bell to convert the principal balance of the note and any accrued interest thereon at any time before payment into shares of the Company’s common stock at a fixed conversion price of $3.55 per share (subject to adjustment for stock splits, reverse stock splits, and similar events) (the “Conversion Price”), which was the closing consolidated bid price of the Company’s common stock on the trading day immediately prior to the date of issuance. In addition, the Company has the right to mandatorily convert the principal balance of the Director Note plus any accrued interest into shares of the Company’s common stock at the Conversion Price upon the earlier of the Maturity Date and the closing of a Liquidity Event if, and only if, the Conversion Price was less than the average closing price of the Company’s common stock for the five consecutive trading days ending on the trading day immediately preceding the date the Company exercises its conversion rights.

On June 30, 2016, the Company entered into a Letter Agreement (the “Bell Exchange Agreement”) with Dr. Bell. The Company agreed to an exchange with Dr. Bell of the Director Note for a number of shares of the Company’s common stock equal to (a) the principal amount of the Bell Note plus the accrued interest thereon through and including the date of the settlement of the exchange contemplated by the Bell Exchange Agreement, divided by (b) $1.6215.

The transactions contemplated by each of the Kanis Exchange Agreement and the Bell Exchange Agreement are subject to the approval of the Company’s stockholders and therefore these condensed consolidated financial statements do not give effect to any adjustments that will arise from these agreements.

Note Purchase Agreement and Convertible Notes

On June 30, 2016, the Company also entered into a Note Purchase Agreement (the “Note Purchase Agreement”) with Haldor Topsøe A/S, a company organized under the laws of Denmark (“Haldor Topsøe”). The Company agreed to sell and issue (i) a Senior Convertible Promissory Note (the “Senior Note”) in the principal amount of $0.75 million and (ii) a Convertible Promissory Note (the “Note”, and with the Senior Note, the “Convertible Notes”) in the principal amount of $0.5 million, each of which is convertible into the Company’s equity securities.

The Convertible Notes provide for interest at a rate of 8% per annum, mature on December 31, 2016 and bear no prepayment penalty. The Convertible Notes provide that they shall at no time be convertible into more than 779,350 shares (subject to adjustment for stock splits, reverse stock splits, and similar events) of the Company’s common stock and/or other securities convertible or exercisable for such number of shares of the Company’s common stock.

The Convertible Notes permit Haldor Topsøe to convert the principal balance of the Convertible Notes into shares of the Company’s common stock at a fixed conversion price of $1.6215 per share at any time. In addition, the Senior Note permits Haldor Topsøe to convert the principal balance of the Senior Note into equity securities that the Company may issue in a future financing including any instruments or securities exchangeable for or convertible into equity securities, at the same price and on the same terms at which the Company sells equity securities in such future financing. The Company has the right to mandatorily convert the Convertible Notes. As long as the Company’s common stock continues to be listed on The NASDAQ Stock Market, LLC (“NASDAQ”) and the Company is not in default under the Note, the Company has the right to mandatorily convert the principal balance of the Note into shares of its common stock at the conversion price of $1.6215 per share at any time before payment and following the date of conversion of the Kanis Notes into the Company’s common stock. The Company has the right to mandatorily convert the Senior Note, subject to satisfaction of the same conditions to conversion of the Note, upon consummation of a Qualified Financing into the equity securities the Company issues in the Qualified Financing at the same price and on the same terms at which it sells such equity securities in the Qualified Financing. A “Qualified Financing” is defined as an equity or equity-linked financing in which the Company receives aggregate gross proceeds of at least $5.0 million (including the principal amount of the Senior Note converted in such financing).

Accrued interest under the Convertible Notes is not convertible into the Company’s equity securities and any interest that has accrued on principal amount converted into equity securities will be paid in cash at the time of such conversion.

Pursuant to the Note Purchase Agreement, the Company agreed, if requested by Haldor Topsøe, to expand the size of its board of directors by one member and appoint one person designated by Haldor Topsøe. Thereafter, until the later of (i) the date that the Convertible Notes have been paid in full or (ii) if 100% of the principal amount of the Convertible Notes have been converted into the Company’s common stock and/or other equity securities, the date Haldor Topsøe no longer owns at least eighty percent (80%) of such securities, the Company’s board shall include one person designated by Haldor Topsøe in the board’s slate of nominees to be submitted to stockholders at each meeting of stockholders of the Company where directors are to be elected.

Subordination Agreement

Concurrently with the execution of the Note Purchase Agreement, Kanis, the Company and Haldor Topsøe executed a Debt Subordination Agreement, dated June 30, 2016, pursuant to which Kanis agreed to subordinate the Company’s obligations under that certain Promissory Note in favor of Kanis, dated as of April 1, 2016, in the initial principal amount of $2.0 million, to the payment to Haldor Topsøe of all indebtedness under the Senior Note.